The “Regulatory Reform” newsletter is the monthly initiative aimed at updating the Finance and Risk community with the most recent regulatory changes impacting Banks and Capital Markets firms. We update our regulatory database every month by tracking more than 40 regulatory and industry bodies covering North America, EALA and APAC. Every month, we will seek to highlight approximately 10 regulations shortlisted on the basis of geography of coverage and anticipated business impacts. Our summaries will seek to highlight the risks covered and business processes affected by the regulatory reforms. This newsletter is planned to supplement the existing newsletter “Regulatory Insights” which provides a deeper analysis of business implications and Accenture’s point of view on a single or much smaller set of regulatory changes.

Edition Highlights:

  • The Basel Committee’s final rules5 would set out revised policy framework for the capital treatment of bank exposures to central counterparties.
  • The changes in supplementary leverage ratio calculation proposed7 by the U.S. federal banking regulators would closely align the U.S. standards with global standards.
  • The Financial Stability Board’s guidance9 would define foundational elements of a sound risk culture and its indicators.
Current coverage period: Through April 30, 2014
Note: Anticipated business impact for covered regulations is shown using the following rating legend:
(Low) (Medium) (High)

CURRENT REGULATIONS:

Prudential Regulation Authority (PRA) (): Implementing Capital Requirements Directive (CRD) IV – capital buffers
Publication Date:
April 30th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The PRA has issued a supervisory statement1 to set out its expectations on CRD IV capital buffers and also clarify some of its rules. The statement is relevant to all firms to which CRD IV applies. This complements the specific requirements defined in the applicable sections of the PRA Rulebook and the high level expectations on capital captured in the PRA’s approach to banking supervision.

Australian Prudential Regulation Authority (APRA) (): Simplifying the prudential approach to securitisation
Publication Date:
April 29th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The APRA’s consultation2 on securitization would simplify the framework, improve transparency, and strengthen risk management initiatives of financial institutions. Key features of the framework include a) principles driven approach rather than an extensive set of rules, b) simple ‘skin-in-the-game’ requirement to mitigate agency risks, c) simpler requirements for capital relief, d) better integration with the liquidity risk management regime, e) explicit recognition of funding-only securitization while allowing other types of securitizations, and f) clarification on dealing with warehouses and similar structures.

European Banking Authority (EBA), European Systemic Risk Board (ESRB) (): Common methodology and scenario for 2014 European Union (EU) banks stress test
Publication Date:
April 29th 2014
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing
To be conducted on a sample of 124 EU banks that cover at least 50% of each national banking sector, the EU-wide stress tests of the EBA3 are aimed at assessing resilience of banks to hypothetical external shocks. Key features include a) coverage of wide range of risks including credit and market risks, exposures towards securitization, sovereign and funding risks, b) assumption of static balance sheet which would prevent any defensive action by banks, and c) the adverse scenario that reflects systemic risks.

European Banking Authority (EBA), European Securities and Markets Authority (ESMA) (): Risk-mitigation techniques for OTC-derivative contracts not cleared by a Central Counterparty (CCP)
Publication Date:
April 14th 2014
Risks Covered: Counterparty Risk, Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing, Netting and Collateral Management
The EBA’s consultation4 would outline risk management framework under the European Market Infrastructure Regulation for exposures to OTC derivative contracts that are not required to be centrally cleared. Important coverage includes a) risk management procedures for counterparties, b) margin methods, c) eligibility and treatment of collateral, d) operational procedures, and e) procedures in relation to intragroup derivative contracts. These are also aimed at managing systemic risk that can arise due to concentration of exposures.

Bank for International Settlements (BIS) (): Capital requirements for bank exposures to central counterparties (CCPs)
Publication Date:
April 10th 2014
Risks Covered: Counterparty Risk
Business Processes Impacted: Finance, Risk Management and Stress Testing
The Basel committee has issued a revised policy framework5 for the capital treatment of bank exposures to CCPs. The final standard will come into effect as of 1 January 2017, and until then the interim requirements continue to apply. Key revisions to the framework pertain to the following areas: capital requirements determination for bank exposures to qualifying CCP (QCCPs), cap on the charges to bank exposures to QCCPs, treatment of multi-level client structures, and updates to frequently asked questions on the revised policy framework.

Financial Stability Board (FSB) (): OTC Derivatives Market Reforms Seventh Progress Report on Implementation
Publication Date:
April 8th 2014
Risks Covered: Counterparty Risk, Compliance Risk
Business Processes Impacted: Risk Management and Stress Testing, Clearing and Settlement – Exchange Traded and OTC
The FSB has published its seventh progress report6 on the implementation of the OTC derivatives market reforms. It covers in brief the progress of the reforms across FSB member jurisdictions. As per the report there is good progress in the implementation of trade reporting, capital requirements, and central clearing, however, inconsistencies or delays remain with respect to specific areas, such as promoting trade on exchanges or electronic trading platforms. The report also identifies some practical implementation issues which, if not resolved, can impede the effectiveness of the reforms in meeting certain Group of Twenty (G20) objectives.

Board of Governors of the Federal Reserve System (the Fed), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC) (): Regulatory Capital Rules: Regulatory Capital, Proposed Revisions to the Supplementary Leverage Ratio
Publication Date:
April 8th 2014
Risks Covered: Operational Risk, Compliance Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
The Fed, FDIC and OCC have proposed a rule7 that would revise the calculation of the supplementary leverage ratio and the definition of total leverage exposure, as part of comprehensive revisions to the agencies’ regulatory capital rules (2013 revised capital rule). This would apply to all banks, savings associations, bank holding companies, and savings and loan holding companies (banking organizations) that are subject to the agencies’ advanced approaches risk-based capital rules (advanced approaches banking organizations). The proposed changes are designed to strengthen the supplementary leverage ratio by more appropriately capturing the exposure of a banking organization’s on- and off- balance sheet items.

Bank for International Settlements (BIS) (): Progress report on implementation of the Basel regulatory framework
Publication Date:
April 7th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management and Stress Testing
Updated as of end of March 2014, the Basel Committee’s progress report8 provides a high level view of progress made by member jurisdictions in adopting Basel II, Basel 2.5, and Basel III. Focus is on rulemaking processes to ensure that the Basel Committee’s standards are transformed into regulation in line with internationally agreed target dates of implementation. The Basel Committee believes such reports would serve as added incentive for member jurisdictions to fully comply with international standards.

Financial Stability Board (FSB) (): Supervisory Interaction with Financial Institutions on Risk Culture A Framework for Assessing Risk Culture
Publication Date:
April 7th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Risk Management and Stress Testing
The FSB has published its recommendations9 for supervisors to assess the soundness and effectiveness of risk culture at financial institutions, particularly at Systemically Important Financial Institutions. This guidance is based on the collective experience of various supervisory and regulatory authorities across the FSB membership and insights drawn through interaction with market participants on various forums. The paper defines certain fundamental elements that promote a sound risk culture, and also aims to help supervisors in identifying practices, attitudes and behaviors that potentially affect an institution’s risk culture.

Office of the Superintendent of Financial Institutions (OSFI) (): Regulatory Compliance Management
Publication Date:
April 5th 2014
Risks Covered: Compliance Risk, Operational Risk
Business Processes Impacted: Audit, Legal and Compliance, Risk Management and Stress Testing
Issued with a view to communicating its expectations around management of regulatory compliance risk by financial institutions, the OSFI’s consultation10 would reflect current leading practices. Major coverage includes a) key control elements in relation to identifying, assessing, mitigating and reporting of regulatory compliance risks, b) roles and responsibilities of board of directors, chief compliance officer, internal audit, and senior management, and c) supervisory assessment that would depend on the nature, size, complexity and risk profile of financial institutions.

FORTHCOMING REGULATIONS:

European Banking Authority (EBA): EBA updates its work programme for 2014
Following a series of calls for advice from the European Commission, the EBA’s work programme11 would cover a) own funds requirements for covered bonds, b) capital requirements on exposures to transferred credit risk, c) implementation of Internal Capital Adequacy Assessment Process and Pillar 2 requirements, d) alternative methods to treat fair value gains and losses arising from an institution’s own credit standing, e) appropriateness of definition of eligible capital applied for the purposes of large exposures regime, and f) long term financing including impact assessment on the leverage ratio and the net stable funding ratio.

Footnotes:

  1. Prudential Regulation Authority (PRA): Implementing CRD IV – capital buffers
  2. Australian Prudential Regulation Authority (APRA): Simplifying the prudential approach to securitization
  3. European Banking Authority (EBA), European Systemic Risk Board (ESRB): Common methodology and scenario for 2014 EU-banks stress test
  4. European Banking Authority (EBA), European Securities and Markets Authority (ESMA): Risk-mitigation techniques for OTC-derivative contracts not cleared by a CCP
  5. Bank for International Settlements (BIS): Capital requirements for bank exposures to central counterparties
  6. Financial Stability Board (FSB): OTC Derivatives Market Reforms Seventh Progress Report on Implementation
  7. Board of Governors of the Federal Reserve System (the Fed), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC): Regulatory Capital Rules: Regulatory Capital, Proposed Revisions to the Supplementary Leverage Ratio
  8. Bank for International Settlements (BIS): Progress report on implementation of the Basel regulatory framework
  9. Financial Stability Board (FSB): Guidance on Supervisory Interaction with Financial Institutions on Risk Culture A Framework for Assessing Risk Culture
  10. Office of the Superintendent of Financial Institutions (OSFI): Regulatory Compliance Management
  11. European Banking Authority (EBA): EBA updates its work programme for 2014
DISCLAIMER: This blog is intended for general informational purposes only, does not take into account the reader’s specific circumstances, may not reflect the most current developments, and is not intended to provide advice on specific circumstances. Accenture disclaims, to the fullest extent permitted by applicable law, all liability for the accuracy and completeness of the information in this blog and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professional.

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Regulatory Compliance Team

Accenture Regulatory Compliance Team, Finance & Risk Practice

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